Is the US dollar about to go into freefall?

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Is the US dollar about to go into freefall?

Surprisingly the crisis that was initially generated by the US hasn't affected the value of its dollar. Now however it seems a threshold has been crossed and the outcome of the Fed printing its own money will lead to inflation and devaluation of the currency, just the factors the Chinese were worried about. ...

While nearly every facet of Americaís economy has been devastated over the past six months, our national currency has thus far skipped through the carnage with nary a scratch. Ironically, the U.S. dollar has been the beneficiary of the global economic crises which the United States set in motion. As a result, our economy has thus far been spared the full force of the storm.

This week the Federal Reserve finally made clear what should have been obvious for some time Ė the only weapon that the Fed is willing to use to fight the economic downturn is a continuing torrent of pure, undiluted, inflation. The announcement should be seen as a game changer that redirects the fury of the financial storm directly onto our shores.

In its statement, the Fed announced its intention to purchase an additional $1 trillion worth of U.S. treasury and agency debt. The purchases, of course, will be made with money created out of thin air through the Fedís printing presses.

Few can doubt that they will persist with these operations until the economy returns to its former health. Whether or not this can ever be accomplished with a printing press alone has never been seriously considered. Bernanke himself admits that we are in uncharted waters, with no map or compass, just simply a hope that more dollars are the answer.

Rather than solving our problems, more inflation will only add to the crisis. Falling asset prices, the credit crunch, declining consumer spending, bankruptcies, foreclosures, and layoffs are all part of the necessary rebalancing of our economy. These wrenching movements, however painful, are the marketís attempts to resolve the serious problems at the root of our bubble economy. Attempts to literally paper-over these problems will lead to disaster.

Now that the Fed has recklessly shown its hand, the mad dash to get out of Treasuries and dollars should not be far off. The more the Fed prints to buy bonds the less the dollar is worth.

Holders of our debt (read China and Japan) understand this dynamic. We must expect that they will not only refuse to buy new bonds, but they will look to unload those bonds they already own.

More on the link http://www.lewrockwell.com/...
By netchicken: posted on 22-3-2009








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